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Kevin Fipps

8 Tips for Applying for a Mortgage

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Applying for a mortgage? Despite increasing prices in the Portland real estate market for the last few years, the city remains a popular place to buy a home. Some Portland buyers will pay in cash for their homes in 2018 — but the large majority will use traditional financing. Here’s our latest Portland real estate agent guide to smart borrowing.

Don’t overestimate your earnings.

It was big economic news last week: Companies are seeing more competition for workers and the cost of replacing workers is up, meaning wages are expected to grow significantly in the next 12 to 24 months. Does this mean you can borrow more heavily for your Portland home?

Don’t do it, says Bankrate.com. “You can move up to a more expensive house after (and not before) your income rises,” they advise, adding that “A conservative rule of thumb is that all of your monthly debt obligations, including the house payment, shouldn’t exceed 36 percent of your income before taxes.”

From a real estate perspective, buying more of a home than you can afford is asking for trouble. Homeownership comes with a long list of costs, some of which can be predicted (with a proper home inspection) and some of which will be a surprise. There should always be a little extra money in the bank to take care of those costs, rather than going delinquent on your mortgage. When your wages do increase, you’re not tied to putting that money into your home. Travel, eat at a new Portland restaurant every night — or pay off your mortgage faster, it’s up to you.

Use a Portland buyers’ agent.

A home is the biggest investment many people will make in their lifetime. Shopping for home online is easy — but when it comes to negotiating the transaction and ensuring that the home is everything the seller says it is, you need a professional on your side. When you take out a loan for a Portland home, you’ll breathe a lot easier with a real estate agent to guide you through the entire process. They’ll also be your ally when you sell the home — even if that’s not on your radar now.

Borrow sooner, rather than later.

Although they are still very low by historical standards, home mortgage rates are expected to rise this year in the wake of economic growth in the US. The Mortgage Bankers Association predicts mortgage rates could increase to 4.6% in 2018 and exceed 5% in 2019. While it’s just a few tenths of a percentage point, it can make the difference of a few thousand dollars, depending on the amount and length of your home loan. It’s also important to remember that this is an average rate and that your actual mortgage rate may differ depending on who your lender is and your personal credit history. For most people who have been considering a home purchase for the past few years, 2018 will be the year to do it. We may not see mortgage rates this low again for a while.

Lock the mortgage rate in.

While variable interest loans may have their advantages for some buyers, with home mortgage interest rates as low as they are right now, it makes sense to ask your lender if they can lock it in for the lifetime of the loan. You will only have a short period of time to do this, and the nature of mortgage rates is that they fluctuate from day to day. Bankrate’s advice is to not overthink it. “Pick a rate that you can be happy with, and when it hits, lock the rate. The key is to be happy with the rate you were able to get and not look back.”

Pre-what? Get pre-approved.

Don’t confuse “pre-qualified” with “pre-approved”. Lenders issue pre-qualifications for potential borrowers without thoroughly examining their financial situation and credit history. Sometimes, but not always, the actual amount they’re willing to loan is different than the amount on their “pre-qualification” letter. It’s always a good idea to get pre-approved for a home loan before you go home shopping in Portland — that way you’ll know exactly what your price range will be based on a monthly payment that’s manageable for you. Of course, it’s not a requirement to have pre-qualification or pre-approval in order to find a real estate agent and start looking at homes. However, our Portland buyers’ agent specialists encourage home buyers to shop around for their home loan, and obtaining a pre-approval letter early. And we’re always happy to recommend lenders whose services we’ve been happy with in the past. In this real estate market, who can afford to let their home fall out of escrow because of an inexperienced mortgage officer?

Make a smart investment.

Many Portland home buyers are now recognizing that buying a home is, in many cases, cheaper than renting. But putting money toward a mortgage instead of rent means that you’ll want to get that money back again when you sell the home. Unfortunately, while real estate is still one of the safest investments available, it’s not a guarantee. Talk to your Portland real estate agent about how to avoid the common first-time home buyer mistake of paying too much for a home. Red flags are not always visible to the eye, so talk to a real estate agent before you sign the papers.

Don’t touch that credit!

After you’ve put in an offer on your Portland home, the bank will begin the process of finalizing your loan. During this time, you should avoid doing anything that will cause a change in your credit report. It’s a common first-time homebuyer mistake to max out a credit card ordering furniture while the home is in escrow! This changes your debt-to-income ratio, which is one number lenders look at closely. Even just applying for a credit card can cause a pull on your credit, which may alter your credit score and cause a delay in the lender being able to close the deal.

Vigilance = Good Credit for Life.

Just because your home is closed and you’re all moved in, doesn’t mean you should start racking up debt. If you ever decide to refinance your home loan, your credit score will be under the microscope again. Same goes if you decide to purchase a new home — which most people do after 10 years. You’re in good shape if you make all your mortgage payments, but paying down credit cards and student debt at the same time will ensure that you get the best possible rate on your next home loan.

As your Portland real estate team, we’re not just with you for the home purchase or sale – we’re your agents for life, or as long as you love our services! Contact us anytime with all your Portland home buying questions.